States could cut their costs of complying with the Environmental Protection Agency’s carbon emission rule by more than one-quarter through 2020 by joining a regional compliance program similar to the Regional Greenhouse Gas Initiative (RGGI) cap-and-trade program.

The EPA estimates total compliance costs of $7.5 billion in 2020 (2011$) if states comply individually, versus $5.5 billion if all states take a regional approach.

Costs rise to $8.8 billion (2011$) in 2030 under state compliance, compared with $7.3 billion for the regional approach.

“States may choose to cooperate in order to achieve more cost-effective outcomes, since some states can reduce their emissions more easily relative to others,” the agency explained. It “expects this flexibility to reduce the cost of achieving the state goals and therefore expects it to be attractive to states. For example, the RGGI-participating states could choose to submit a multi-state mass-based plan that demonstrates emission performance by affected [electric generating unit (EGU)] on a multi-state basis. Additional states may also choose to join a multi-state plan.”

Individual state plans must be filed with the agency by June 30, 2017, with a one-year extension possible. Regional plans won’t be due until June 30, 2018.

The EPA’s regional analysis assumed five regions based on North American Electric Reliability Corp. (NERC) regions and RTO footprints. States that fall into more than one region were grouped in the region that comprised the majority of geography or generation. Thus, the EPA’s “East Central (PJM)” region included only seven states: Ohio, Pennsylvania, West Virginia, Maryland, Delaware, New Jersey and Virginia (see map.)

Mass- or Rate-Based Standards

The EPA’s default state emission limits are rate-based, setting limits measured in pounds of CO₂ per MWh of generation. States have the option of converting the rate-based standards to a mass-based limit measured in tons of CO₂. The regional plans also have the choice of a rate-based standard or the mass-based caps used by RGGI. (See related story, LaFleur, Bay: ‘Flexibility’ of EPA Rules Mitigates Reliability Concerns.)

The agency invited comment on suggestions that it develop a model rule for an interstate emissions credit trading program that could be easily adopted by states.

Nine states, including Maryland and Delaware in PJM, participate in RGGI. New Jersey withdrew from the program in 2011. (See related story, EPA’s Carbon Rules Attacked from Both Flanks.) California has established an economy-wide, market-based greenhouse gas emissions trading program, which requires the state to reduce its 2020 GHG emissions to 1990 levels.

RGGI, which was created in 2009, sets an overall limit on allowable CO₂ emissions from affected generators. Participating states issue carbon allowances based on their annual emission budgets.

At the end of each three-year compliance period, affected generators must submit CO₂ allowances equal to their reported carbon emissions. The allowances may be traded among both regulated and non-regulated parties, creating a market and price signal for emissions. The price signal factors into the economic dispatch of affected generators.

Between 2009 and 2012, the RGGI states invested auction proceeds of more than $700 million in programs to lower energy costs and reduce emissions, such as energy-efficiency programs.

Power sector carbon emissions in the RGGI-participating states fell by more than 40% between 2005, when RGGI was announced, and 2012. The EPA acknowledges RGGI was not the primary driver for these reductions — reduced electric demand following the 2008 recession was a big factor. In January, the group lowered its 2014 CO₂ emission cap by 45%.

PJM Role?

The EPA also is seeking comment on how PJM and other RTOs and ISOs could help states achieve efficiencies, a role suggested by the ISO/RTO Council.

“Just as the ISO/RTO regions today share the benefits and costs of efficient EGU dispatch across state boundaries, there are significant efficiencies that could be captured by coordinating individual state plans or implementing multi-state plans within a grid region,” the agency said. “Under one variant of this approach, states would implement a multi-state plan and jointly demonstrate CO₂ emission performance by affected EGUs across the entire ISO/RTO footprint.”